Is Tyler going to critique Krugman’s new blog post featuring an econ101 attack on non-lefty economists and support for a 70% top marginal tax rate? Or is this one of those Krugman posts that’s so blindingly silly that we all are just supposed to look the other way?

Ken BNovember 23, 2011 at 11:50 am

Landsburg’s blog readers have asked him for a response too.

CBBBNovember 23, 2011 at 12:34 pm

The attack on Econ10 is completely legitimate if viewed as an attack on Orthodox economics which has been a complete failure.

Tyler CowenNovember 23, 2011 at 12:53 pm

Jeff, the latter. Not worth it. See Modeled Behavior and Scott Sumner. The original post was very weak.

70% isn’t particularly unprecedented – 90 didn’t cause too many problems. I love how internalised it is among many that high marginal tax rates are a bad thing, despite the lack of evidence to support it.

JWattsNovember 23, 2011 at 3:59 pm

I love the idea that people think the US ever collected 70% in taxes versus having a very high marginal rate coupled with massive loop holes, tax shelters and avoidance. Yep, those were the good old days

I can’t currently find it but from what I remember effective tax rates peaked at around 55% in the 50s/60s, which is obviously lower than now. If you can find data on effective tax rates I’d be grateful.

‘Or do you and Krugman see high taxes as a social goal regardless of effects on revenue?’

Depends. The original 90% marginal income tax was designed to collect rentier income which is obviously a desirable social goal, so to that extent yes. Inequality is also corrosive but reduction of that is best achieved elsewhere – financial reform ,eliminating corporate subsidies, reforming patent law etc.

BenNovember 23, 2011 at 5:47 pm

You are ignoring globalization and how it would effect much higher rates in the present.

Actually, there is a fair amount of evidence to suggest rich people and companies aren’t as mobile as they want us to think. Ha-Joon Chang writes this in his chapter ‘Capital has a nationality’ in 23 things. There is also the new paper Sumner, Krugman etc. are discussing, which includes this, and still estimates the optimal rate at 76%.

I went and looked at the marginal tax rates versus GDP and the highest rates were primarily associated with peaks of GDP followed by drops. And the secular drop in the early 80’s appears to correlate well with The Great Moderation. It’s as good of a timing indicator as I’ve seen in a while. So when Ezra Klein smugly asserts that high marginal rates correlated to high GDP he is likely saying the opposite of what he wants his readers to think he’s saying.

And see how rises in the marginal rate are followed by drops in GDP and drops in the rate are followed by rises in GDP. Yes, GDP adjusts, as it usually can but don’t rely on the magic of the market to excuse policy ignorance. “Because we can get away with it” isn’t a convincing philosophy.

Andrew'November 24, 2011 at 4:35 am

Also note how I’m not talking about opinions, conclusions, or personalities but easily observable facts. And note Angrybear’s conclusion is:

“A couple things to notice… to the naked eyeball, there doesn’t seem to be all that much of a relationship between marginal rates and growth, despite the commonly accepted story line about how higher marginal rates lead to slower economic growth.”

And all I can think of what he’s talking about is that when the marginal rate is high that the GDP doesn’t constantly drop to zero.

Andrew I find it hard to comprehend what you’re saying. Are you implying that high tax rates lead to bigger busts or something? You seem to be trying to use evidence that supports my position to try and support the opposite one.

Hey, I bet if you forcibly replace all Greeks’ euros with devalued drachmas, the loan shark will accept them as payment at the official government conversion rate, and it will be easlier to pay off the loan!!!

JWattsNovember 23, 2011 at 4:01 pm

I’d take that bet. I would fully expect the Bulgarian Loan shark to either insist on Euros or to require the payment be at higher than face value or to break your legs.

Claudia SahmNovember 23, 2011 at 12:34 pm

2. Sometimes “America’s Got Talent” makes me cringe, but this (the few bits I watched over lunch) is way worse.
4.a. Has the most bizarre explanation of logarithms I have ever read.
But both links are “better” than the drum-beat of depressing news as in 1.

mobileNovember 23, 2011 at 3:25 pm

Loan sharks offer a 5 percent a month interest rate, which seems low compared with the 12-15 percent interest a year that banks and credit cards usually charge.

I have a new theory for the cause of the Greek crisis. Also, a great new business idea: extend credit to Greek small business owners at the low low interest rate of 0.99% per day.

Haha oh Scott. You really would have to go through rehabilitation before empirical facts could make you abandon your theory.

jkNovember 23, 2011 at 5:46 pm

Re 3: The rush to praise Germany’s unemployment rate is probably due to Kurzarbeit (reducing work hours across the board as opposed to laying off). It’s not that Kurzarbeit is a bad idea however…but less than half time employee does bump up the employment stats.

I am celebrating. For the first time TC has pointed to something good about India.

JamieNovember 23, 2011 at 11:14 pm

#2 doesn’t strike me as any different than professional wrestling in substance. And note, that spawned both Jesse Ventura’s relatively successful political career, a wanna-be political career for Linda McMahon.

SandeepNovember 24, 2011 at 8:52 am

There is a difference in the emotional content involved – wrestling is about thrashing the other guy, this one is about celebrating heroic endurance. It is actually not quite sadist/masochist markets in everything, though of course TC can get away saying that that description was tongue in cheek, or by appealing to pseudo-Freudian type theories.